In March 2024, the Cayman Islands Government gazetted the Companies (Amendment) Act, 2024 (“2024 Amendment Act”), which, once brought into full effect, will further modernize the Companies Act by enabling companies to do the following:
- Reduce its share capital. The 2024 Amendment Act greatly simplifies the process for the reduction of share capital, which currently requires court approval and is cumbersome, impractical and expensive. Under the 2024 Amendment Act a Cayman company will be able to reduce its share capital by undertaking the following steps:
- Confirming that its articles of association permits such action;
- Shareholders pass a special resolution authorizing it;
- The company provides a solvency statement confirming it meets the solvency test;
- The company files the special resolution and solvency statement within 15 days of the date of the adoption of the special resolution; and
- The Registrar publishes notice of reduction in the Cayman Islands Gazette.
- Redeem or repurchase fractional shares. The 2024 Amendment Act clarifies that fractional shares may be repurchased or redeemed, if permitted by the company’s articles of association. This will simplify the operational aspects of entities including listed companies and investment funds where fractional shares are widely present.
- Convert from an LLC or Foundation company to an exempt company. The 2024 Amendment Act permits the conversion of an LLC or a foundation company to an exempted company. It should be noted that equivalent provisions already exist in the Limited Liability Companies Act (2023 Revision) to convert an exempted company to an LLC. It is important to note that conversion does not create a new legal entity and will not impact the standing of the converting entity or its property.
- Re-register as an ordinary resident company for companies wishing to carry on business within the Cayman Islands.
- Continuation of Foreign Corporate Entities that do not have share capital. The 2024 Amendment Act allows foreign bodies corporate with or without a share capital under the laws of any jurisdiction outside of the Cayman Islands to apply to be registered by way of continuation as an exempted company limited by shares under the Companies Act. Previously only bodies corporate with a share capital could continue into the Cayman Islands as an exempted company.
Observations and Recommendations
The change to how an exempt company may decrease its share capital is a welcome improvement in the law. Over the past decades we have witnesses a few instances where companies got into trouble, particularly those with high par value shares in which so much of their capital was tied up. Although in recent years its rare to see such situations, they still exist and in some cases cause significant headaches. The ability to reduce the share capital without undertaking court procedure means that more situations will be resolved quicker and at a lower cost.
Liewise, the ability to convert an LLC or foundation into an exempt company is simply an evolution of the law that streamlines a process that already exists and is well established in relation to other legal structures. As we see an increase in the use of Cayman LLCs and foundations, we also see an increase interest in the potential conversion into a standard exempt company.
We recommend that you check your memorandum and articles of association to ensure they are up to date with these changes. Most recent M&As would already include necessary language, however, it is quick check. If you need assistance with any aspect of company laws please contact us for advice.